The draft of an outline paper by the Senate Administration for Urban Development for a state act regarding the introduction of a rent price cap for residential apartments in Berlin (“Berliner Mietendeckel”) surfaced last week. The draft bill is scheduled to be presented at the end of August and, after approval by the Berlin Senate, will enter the legislative process in October. The bill is intended to enter into force in January 2020.

The current proposals correspond to a large extent to concepts that have been publicly discussed in recent months. The rent price cap shall apply in the whole State of Berlin. Key aspects include:

• The rent level for all existing apartments will be frozen for five years. The draft outline paper expressly states that landlords will not receive a compensation for inflation.

• The rent price cap shall apply both to existing leases and to new leases. Exceptions are newly erected buildings, publicly subsidized apartments and cases, where the rent price cap would constitute an economic hardship for the landlord.

• If landlords want to levy the costs of modernization measures onto their tenants, they henceforth require a permit, provided that a rent increase of more than 0.50 Euros per square meter would ensue.

• To enforce the rent price cap, new rent control authorities are to be established, which will be entitled to issue public orders prohibiting landlords to charge a higher rent or forcing landlords to lower the rent to the level permitted by the rent price cap. In case of non-compliance, fines can be levied upon the landlords.

These proposed new regulations in our opinion violate the German Constitution. We have outlined concerns in an expert opinion provided for the Berlin/Brandenburg state association of the BFW. On these grounds, the BFW has published its critical position last week (link in German only). The Berlin rent price cap is therefore unconstitutional – at least as far as it shall apply to privately financed, not publicly subsidized apartments:

• The State of Berlin already lacks a legislative competence in this respect. This is because the German federal government has already comprehensively regulated the rent prices on the federal level in the German Civil Code ("Bürgerliches Gesetzbuch"). The federal government was authorized to do so on grounds of its competing legislative competence for the field of civil law. That the federal government still intends to be the (only) legislator on the field of rent price law was just recently confirmed again when the Federal Ministry of Justice introduced a bill to sharpen the so-called rent price brake ("Mietpreisbremse") regulated in the German Civil Code.

• The rent price regulation under federal law, including the rent price break, and the Berlin rent price cap would regulate one and the same subject matter: the contractual relationship between landlord and tenant. If one were to grant the State of Berlin a legislative competence for this identical subject matter, one could just as well abolish the concept of competing legislation between the federal government and the German states. As a consequence, a cornerstone of the German federal state system would be thwarted. That the rent price cap – as proposed in the draft outline paper – might be introduced in a public law structure does not alter this assessment.

• The Berlin rent price cap in our opinion would also violate the constitutional guarantee of property. Since not even a compensation for inflation will be provided, the rent price cap would be in breach of the prohibition to cause financial losses. This prohibition is an element of the guarantee of property under the German Constitution.

• Furthermore, freezing the rent level for five years also constitutes a disproportionate encroachment upon the constitutional property rights of the landlords. This is because the Berlin State legislator could resort to a variety of other measures that constitute a less intense encroachment upon the guarantee of property and would accelerate the erection of new apartments as well as provide effective financial support for tenants with lower incomes. These measures must be exhausted first before a rent price cap can come into play.

A detailed analysis will not be possible until the draft bill is available at the end of August. This will be followed by a hearing of associations. Parliamentary deliberations are to take place in the fourth quarter of 2019. We will keep you informed about further developments in the legislative process and in the political discussion. Please do not hesitate to contact us if you have any questions or would like to find out more about this topic.